Should I Invest or Not???

LauraHallAugust 29, 2012

Hi to all! Just want to share my problem with you, hope you can help me with this.

My husband and I are planning to invest our savings buy buying a new property. But we are still not sure about it, and weighing things for now. He said that we can buy a house for our family. But I am not convinced if it is a good idea, and I don't know which is a good place to find that home. I need some help about this matter. Please.

Thank you in advance!:)

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barbcollins

Is this going to be your first home?

    Bookmark   August 30, 2012 at 6:45AM
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ottawavalleygardener

I see that you live in Canada. Where? It WILL be your life savings and more if you live in Toronto or Vancouver, and although sales have slowed, there is no indication that prices will significantly drop.

I would suggest getting a Realtor if you're looking to buy where you currently live, and find out what you can get for your $. Also, check with your bank or credit union to see how much you can borrow if you're not paying cash.

    Bookmark   August 30, 2012 at 7:26AM
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GreenDesigns

Please do NOT look at buying a home as an "investment"! It is an EXPENSE. You do not want to be sinking your entire savings into real estate. A residence is necessary, but it's not always the smart thing to do to own that residence. Sometimes renting is actually smarter, especially early on in life where savings are low and your job is more mobile. Buying a home has a lot of fees associated with it that make renting cheaper if you have to move frequently. Also, despite the strong market in many areas in Canada, there is zero assurance that it won't stall or even reverse as it's done in the US. There is no guarantee that all of the money that you put into this home will not up and vanish should the values plummet. You have to be OK with that potential. You also have to have enough money in the bank to still have enough savings on board even after purchase to cover expenses should something like job loss or illness happen in your family.

Please talk to a financial planner as well as a real estate agent to see if buying is a smart move for you at this phase in your life.

    Bookmark   August 30, 2012 at 8:55AM
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LuAnn_in_PA

"Please do NOT look at buying a home as an "investment"! It is an EXPENSE."

Ha! Just what I was going to post.

    Bookmark   August 30, 2012 at 9:16AM
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DLM2000

Very wise words, GreenDesigns and not just for a first time home buyer. I hope the OP follows your advice.

    Bookmark   August 30, 2012 at 9:43AM
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cmarlin20

I do think of my personal residence house as an investment. I think of it as a long term investment. Over time property does go up in value, when buying you can lock in your expense. Also over time you pay off (or pay down)your house mortgage giving you equity and financial security for your future.
Of course, long term is key, sometimes property goes down in value for the short term, if you have cash flow problems you may lose money or if you need to sell too soon, you can take a loss.
For a long term view buying a house is a good investment. Of course there are exception, I'm thinking of places like Detroit and other places with serious problems, but each person should explore their areas financial perspective.

    Bookmark   August 30, 2012 at 1:06PM
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writersblock

>For a long term view buying a house is a good investment.

Historically it's not much of an investment. Over the long haul almost any other investment type historically produces better returns. You should buy a house to have a home, not a bank account.

I rented for many years before I bought, and while I paid more each month on the surface, there's no question but that not having to deal with repair/renovation/etc. costs was actually cheaper. I don't regret buying for a moment, but it's NOT cheaper in many markets, not really. I'm with GreenDesigns and the others about that.

Yes, I do know people who made out big time by buying, but mostly that was for unforeseen circumstances (the friend who bought a modest house with a huge yard in Coconut Grove in Miami that he sold ten years later for enough money to keep him the rest of his life because a major upscale hotel wanted the site, for example).

Although I don't think much of them generally, consider this from the Motley Fool:

Prior to 1997, owning a home was not an investment. I can almost hear you all screaming through the computer, "Then why is the home I bought in 1964 for $35,000 now worth $200,000 -- isn't that a nice return on investment?" The answer is "yes," but have you factored in the effect of inflation on your return? Between 1890 and 1990, the average inflation-adjusted return on your home was a paltry 0.21%. It gets even worse if you focus on the period between 1950 and 1997, when the inflation-adjusted return was just 0.08%.

    Bookmark   August 30, 2012 at 1:18PM
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cmarlin20

I guess we'll just disagree, I know personally I've made good returns on housing. I buy my own house to live in and make a good return. One must add in the difference of rent very mortgage payment with tax and insurance. At this time ownership has very good tax breaks, may not in the future but now it does. I also buy rental properties, usually not single family, but at least two on a lot. Again not bad even in these depressed times when one considers the cash flow and tax breaks.
I also invest in stocks, good return, but not very good tax incentives.
Investment housing over the long term has been great for me.
I own properties in Southern California that have appreciated nicely, I have low maintenance, nice tenants. I did have one apartment with high turnover, sold that with good profit and bought in another area with lower turnover.
Real estate is not for everyone, but I disagree that it is not an investment.
The returns quoted on Motley Fool certainly don't match my return. I know my first house bought in 1973 cost $30k, sold it two years later for $42, to buy a house for $50k, sold it five years later for $150k. I could name other costs and dates that reflect a good return, even considering small expenses, and remember these profits were tax free.

    Bookmark   August 30, 2012 at 3:04PM
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brickeyee

"I guess we'll just disagree, I know personally I've made good returns on housing. "

Compared to what other investment?

    Bookmark   August 30, 2012 at 3:39PM
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kaismom

In my particular situation, I made money with 'investment' properties (income generating) and am barely breaking even with my primary residence. (considering how much I put into it over the years; repairs, improvement, the taxes I paid and mortgage I paid)

Greendesign is talking about your home: where you live, your primary residence in real estate lingo.

cmarlins is lumping investment property with primary residence. They are completely different beasts.

Are you talking about your primary residence or an income generating property? I am not going to use the term 'investment' property here so I don't confuse you....

I think of my actively managed income producing properties similar to running a small business. Unless you are willing to do the work necessary to make it profitable, you may or may not make money by having a rental/income property. You also have to have the cash reserve to deal with emergencies. If you don't, then it may get you in a cash bind. We have had repairs/updates that cost 4 or 5 figures unexpectedly and we just pay for them. We have the reserves (or access to money) to deal with them. You also have to be able to carry the mortgages if you can't rent it for a month or two, again, cash reserve.

You also need to know how to think about the financials so that you do not put yourself in a situation where you are set up to lose money, not set up to make money. Some people are good at this and some are terrible at this. No, it is not for everyone.

I have seen really bad rental markets and really good rental markets in the past couple decades. Things go up and down!

If you are interested in an income generating property, read some books on how to evaluate money making property versus money losing property. Do not read books about get-rich-quick schemes. That is not what real estate investing is about....

I like having a mix of "actively managed" real estate and equities in my portfolio. I know many people that have real estate and have done well at it. I also know many people that have lost money at it.... There is no proven method. You have to KNOW how to evaluate your investments.

    Bookmark   August 30, 2012 at 4:01PM
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cmarlin20

I mentioned that I was comparing to equities. Do you know of a better investment? I'd consider something else that will give me a better return, something that gives me better leverage, something that is better tax advantaged.
I haven't found better investment, but I am truly interested in something better, not high risk or to involved with time or experience.
I saw on TV, investors buying exotic cars for a good return, not my thing.

    Bookmark   August 30, 2012 at 4:07PM
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kaismom

brickeye
better than what.... You didn't ask me but this is my answer.
i have both income properties and equities. So far, I have done better with real estate than equities. My equities are somewhat disinterestedly managed in indexed funds. My RE is slightly more actively managed. I am a lazy investor probably because I won't starve in my old age and i have better things to do with my time...

I don't have anyone giving me insider information or calling me before public offerings of IPOs... So i have not hit it big on my stock picks....

    Bookmark   August 30, 2012 at 4:12PM
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StPaulGal

I always find it interesting how people who argue that houses make lousy investments so often neglect to factor in the fact that a house will eventually be paid off. A major motivating factor in my decision to buy a home (in addition to a strong desire to have the final say over my own space) was the fact that before I am 60, I will be done with housing costs. Sure there will still be taxes and maintenance issues, but the mortgage? Kaput! If I was renting, I would be paying monthly until the day I die; this way I can hope for a good 25+ years rent-free. If that isn't an investment I don't know what is.

    Bookmark   August 30, 2012 at 4:21PM
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writersblock

I paid cash. It's still not an investment. I'm not done with housing costs and you won't be, either.

    Bookmark   August 30, 2012 at 4:57PM
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cmarlin20

I paid cash. It's still not an investment. I'm not done with housing costs and you won't be, either.

No one expects to have no expenses with any house.
We are defining investment differently.
You can compare your monthly costs with the monthly rental cost of a comparable property.
Compare your sale price to your purchase price.

    Bookmark   August 30, 2012 at 5:30PM
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LuAnn_in_PA

" It's still not an investment."

Yep!

    Bookmark   August 30, 2012 at 7:25PM
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kaismom

Your home is not an investment. I agree with that. Home is where you live and if you break even at the end of your life, you have done well, IMHO. Most people do not have the discipline to be able to divert the money that they would have spent on their home and invest it 'wisely' to do better than what they would have done in their primary home. This is why it works for most Americans; it's a forced savings account for most people.

Even so, you are at the mercy of the housing market and the timing of it. If you relied on cashing out of your home to retire in 2010, then you would be very sad. If you cashed out in 2006, then you would have looked very smart. The most difficult part of using primary residence as an investment is that it is not easily liquid AND you have to live somewhere after you sell. Unless you downsize significantly AND/OR move to a lower COLA, you may not be able to benefit from that paid off house.

If you plan on living in a paid off house, you have to plan for the expenses associated with the house in retirement. Unfortunately, retired people can be in a situation where they are house rich but they cannot sustain the house with their retirement income because they did not plan well, ie taxes, insurance, maintenance, and utilities may be significantly more than the rent for a small apartment. Sometimes, the retirees struggle to hold onto their paid off house or the house degrades (and loses value) due to neglected maintenance.

ANY investment can lose everything, including real estate. That is not a reason to NOT invest in real estate. There is risk in every investment strategy.
bonds can lose value.
stocks get delisted and go to 0 value.
commodities are crap shoot, dependent on the whim of weather and natural disasters. (look at corn prices this year due to drought)
gold and silver; hmmmm
money market is not even keeping up with inflation these days. I am getting less than 1% return in my money market account. I have to have some cash laying about but geesh, this is rediculous...
short of keeping it in treasury bonds, there is no guarantee. Most people want to do slightly better than the treasury bonds with 'minimal' 'moderate' or 'high' risk, however way they define their own risk level.

There is NO safe investment.

Real estate is one investment strategy one can use if one is educated and one wants to work at it. It is more difficult (work) than keeping it in the indexed funds and forgetting about it.... For many people in America, income producing real estate has done as well if not better than equities. I know nothing about Canadian RE because my particular RE investment strategies are so tied to the tax structure in America....

LauraHall,
if you are interested in RE, read some books and really learn how to evaluate the numbers. Unfortunately, investments are all about numbers. Unless you can make sense of those numbers, you can't really evaluate your own position; this is for ALL investments.

As I am raising my children, I am realizing that I have to educate my children how to do this even if they do not have a finance degree. This is not difficult math. But it is a way of thinking about numbers and not 'lying' to yourself about what the numbers mean.

I wish you the best Laura.

My best answer is to read and study enough to know how to evaluate your position....

    Bookmark   August 30, 2012 at 9:30PM
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ncrealestateguy

Christy, is this you?

    Bookmark   August 31, 2012 at 8:15AM
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cmarlin20

Well I guess we all do agree...

we don't like spammers!!

    Bookmark   August 31, 2012 at 11:08AM
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brickeyee

"i have both income properties and equities. So far, I have done better with real estate than equities."

You have chosen poorly in the equities market.

RE can look good from a quick look, but rarely looks all that good if you compute an external rate of return factoring in ALL the expenses, and incidental costs, and than inflation unless you use a VERY long time frame (and then inflation can easily eat away at the apparent return).

You home you live in is not in the same class.

    Bookmark   August 31, 2012 at 1:17PM
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cmarlin20

"i have both income properties and equities. So far, I have done better with real estate than equities."

You have chosen poorly in the equities market.

Do you not think this statement is a very broad sweeping statement for you to make when you know nothing about the poster investments? equities or RE...

    Bookmark   August 31, 2012 at 1:57PM
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berniek

I believe real estate can be a good investment if you know what you are doing.
If you don't know how to make it work for you, look for a vehicle to invest in you know something about.
It has worked for me and many others, because we know what we are doing.

    Bookmark   August 31, 2012 at 4:10PM
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LauraHall

Oh sorry. Please, don't misjudge me as a spammer! That is really my problem. I am asking here in this forum because I believe that this will help us too aside from a real estate agent or lawyer that we consulted. I guess I'll have a more effective and loyal advice from those people who just give their advice because they want to help and not because they will get something from it. I hope you understand my point. Anyway, thanks a lot from what you have said! I really appreciate it.

    Bookmark   September 1, 2012 at 12:50AM
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brickeyee

"Do you not think this statement is a very broad sweeping statement for you to make when you know nothing about the poster investments? "

Poor returns indicate bad choices.

The answer was give, 'poor returns."

How complicated is that?

    Bookmark   September 1, 2012 at 8:32AM
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cmarlin20

brickeye, you told the poster they made poor equity choices, the poster only mentioned they made better return in RE.
You deduced from that one statement they made "poor" choices, without knowing the actual return in either market.

Should I deduce you have made poor RE choices?

I do not understand this sentence
The answer was give, 'poor returns."
What do you mean by this?

    Bookmark   September 1, 2012 at 10:49AM
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